<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
------------------------
For the fiscal year ended DECEMBER 31, 1996 Commission File No. 1-8923
HEALTH CARE REIT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 34-1096634
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
One SeaGate, Suite 1500, Toledo, Ohio 43604
(Address of principal executive office) (Zip Code)
(419) 247-2800
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
---------------------- ------------------------
Shares of Common Stock New York Stock Exchange
$1.00 par value
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months; and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
----- -------
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K.
[X]
The aggregate market value of voting stock held by non-affiliates of the
Registrant on February 6, 1996 was $441,534,000 based on the reported closing
sales price of such shares on the New York Stock Exchange for that date.
As of February 6, 1996, there were 18,662,919 shares outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive Proxy Statement for the annual
shareholders meeting to be held April 22, 1997, are incorporated by reference
into Part III.
<PAGE> 2
HEALTH CARE REIT, INC.
1996 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
<TABLE>
<CAPTION>
Page
<S> <C> <C>
Item 1. Business................................................................................................3
Item 2. Properties.............................................................................................11
Item 3. Legal Proceedings......................................................................................12
Item 4. Submission of Matters to a Vote of Security Holders....................................................12
PART II
Item 5. Market for the Registrant's Common Equity and
Related Stockholder Matters...........................................................................12
Item 6. Selected Financial Data................................................................................13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................................................................14
Item 8. Financial Statements and Supplementary Data............................................................17
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure................................................................. 33
PART III
Item 10. Directors and Executive Officers of the Registrant.....................................................33
Item 11. Executive Compensation.................................................................................33
Item 12. Security Ownership of Certain Beneficial Owners
and Management.......................................................................................33
Item 13. Certain Relationships and Related Transactions.........................................................33
PART IV
Item 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.................................................................................33
-2-
</TABLE>
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Health Care REIT, Inc. (the "Company") is a self-administered real estate
investment trust that invests in health care facilities, primarily nursing
homes, assisted living facilities and retirement centers. The Company also
invests in specialty care facilities. As of December 31, 1996, long-term care
facilities, which include nursing homes, assisted living facilities and
retirement centers, comprised approximately 85% of the investment portfolio.
Founded in 1970, the Company was the first real estate investment trust to
invest exclusively in health care facilities.
As of December 31, 1996, the Company had $541,496,000 of real estate
investments, inclusive of credit enhancements, in 137 facilities located in 28
states and managed by 51 different operators. At that date, the portfolio
included 56 nursing homes, 63 assisted living facilities, 11 retirement
centers, five specialty care facilities, and two behavioral care facilities. At
December 31, 1996, the Company had approximately $236,277,000 in unfunded
commitments.
The Company's primary objectives are to protect shareholders' capital and
enhance shareholder value. The Company seeks to pay consistent cash dividends to
shareholders and create opportunities to increase dividend payments from annual
increases in rental and interest income and portfolio growth. To meet these
objectives, the Company invests primarily in long-term care facilities managed
by experienced operators and diversifies its investment portfolio by form of
investment, operator and geographic location.
The Company anticipates providing mortgage financing for qualified health care
operators and acquiring additional health care facilities through operating
lease arrangements. Capital for future investments may be provided by borrowing
under the Company's revolving credit facilities, public offerings or private
placements of debt or equity, and the assumption of secured indebtedness.
PORTFOLIO OF PROPERTIES
The following table reflects the diversification of the Company's portfolio as
of December 31, 1996:
<TABLE>
<CAPTION>
Number
Percentage Number of Investment Number Number
Type of Investments of of Beds/ Per Bed/ of of
Facility (1)(2)(3) Portfolio Facilities Units Unit(4) Operators States(5)
-------- --------- --------- ---------- ----- ------- --------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Nursing Homes $245,987 45.43% 56 7,651 $ 34,027 27 18
Assisted Living
Facilities 172,189 31.80 63 4,152 56,990 16 10
Retirement
Centers 42,483 7.84 11 1,366 39,637 6 9
Specialty Care
Facilities 68,109 12.58 5 459 151,523 3 5
Behavioral Care
Facilities 12,728 2.35 2 294 43,292 1 1
-------- ------ --- ------
Totals $541,496 100.0% 137 13,922
======== ====== === ======
- --------------------------------------------------------------
(1) Investments include real estate investments and credit enhancements which
amounted to $522,681,000 and $18,815,000, respectively.
-3-
</TABLE>
<PAGE> 4
(2) Investments do not include $144,389,000 in commitments for financings for
which the Company has not yet commenced funding.
(3) Due to a number of factors, it is possible that some portion of the
commitments for financings will not result in permanent financing.
(4) Investment Per Bed/Unit was computed by using the total investment amount of
$633,384,000 which includes real estate investments, unfunded commitments
for which initial funding has commenced, and credit enhancements of,
$522,681,000, $91,888,000 and $18,815,000, respectively.
(5) The Company has investments in properties located in 28 states.
Nursing Homes
Skilled nursing facilities provide inpatient skilled nursing and custodial
services as well as rehabilitative, restorative and transitional medical
services. In some instances, nursing facilities supplement hospital care by
providing specialized care for medically complex patients whose conditions
require intense medical and therapeutic services, but who are medically stable
enough to have these services provided in facilities that are less expensive
than acute care hospitals.
Assisted Living Facilities
The assisted living facilities provide services to aid in everyday living, such
as bathing, meals, security, transportation, recreation, medication supervision
and limited therapeutic programs. More intensive medical needs of the resident
are often met within assisted living facilities by home health providers, close
coordination with the resident's physician and skilled nursing facilities.
Assisted living facilities are increasingly successful as lower cost, less
institutional alternatives to the health problems of the elderly or medically
frail.
Retirement Centers
The retirement centers offer specially designed residential units for active and
ambulatory elderly residents and provide various ancillary services. Retirement
centers offer residents an opportunity for an independent lifestyle with a range
of social and health services.
Specialty Care Facilities
The specialty care facilities provide specialized inpatient services for
specific illnesses or diseases, including, among others, coronary and
cardiovascular services. Specialty care facilities are lower cost alternatives
to acute care hospitals.
Behavioral Care Facilities
The behavioral care facilities offer comprehensive inpatient and outpatient
psychiatric treatment programs. Programs are tailored to the individual and
include individual, group and family therapy.
-4-
<PAGE> 5
INVESTMENTS
The Company invests in income producing health care facilities with a primary
focus on long-term care facilities, which include skilled nursing facilities,
assisted living facilities and retirement centers. The Company also invests in
specialty care facilities. The Company intends to continue to diversify its
investment portfolio by type of health care facilities and form of financing.
In determining whether to finance a facility, the Company focuses on: (a) the
experience of the operator; (b) the financial and operational feasibility of the
property; (c) the financial strength of the borrower or lessee; (d) the security
available to support the financing; and (e) the amount of capital committed to
the property by the borrower or lessee. Management conducts market research and
analysis for all potential investments. In addition, Management reviews the
value of all properties, the interest rates and debt service coverage
requirements of any debt to be assumed and the anticipated sources for repayment
for such debt.
The Company's investments primarily take the form of operating lease
transactions, permanent mortgage loans and construction financings.
Substantially all of the Company's loans and leases are designed with escalating
rate structures that may result in principal payment or purchase prior to
maturity. The Company's policy is to structure long term financing to maximize
returns. The Company believes that appropriate new investments will be available
in the future with substantially the same spreads over its costs of borrowing
regardless of interest rate fluctuations.
Investments are typically structured using mortgage loans or operating leases
which are normally secured by guarantees and/or letters of credit. As of
December 31, 1996, letters of credit from commercial banks, and cash deposits
aggregating $26,012,000 were available to the Company as security for operating
lease, permanent mortgage loan and construction loan obligations. In addition,
the leases and loans are generally cross-defaulted and the loans are
cross-collateralized with any other mortgage loans, leases, or other agreements
between the operator or any affiliate of the operator and the Company.
The Company typically finances up to 90% of the appraised value of a property.
Economic terms normally include annual rate increases and fair market value
based purchase options in operating leases, and may include contingent interest
for mortgage loans.
The Company monitors its investments through a variety of methods, which are
determined by the type of health care facility and operator. The monitoring
process includes a review and analysis of facility, borrower or lessee, and
guarantor financial statements; periodic site visits; property reviews; and
meetings with operators. Such reviews of operators and facilities generally
encompass licensure and regulatory compliance materials and reports,
contemplated building improvements and other material developments.
For certain investments, the Company receives warrants or other similar equity
instruments that provide the Company with an opportunity to share in an
operator's enterprise value. As of December 31, 1996, the Company had obtained
warrants from seven operators to purchase their common stock or partnership
interest. None of the warrants are publicly traded. In one instance, the
underlying common stock that relates to one set of warrants is publicly traded,
and the market price of the common stock was below the exercise price of the
related warrants at December 31, 1996.
In connection with an investment in one operator, the Company also received
warrants that were converted into 87,823 shares of common stock at the time of
the operator's initial public offering. As of December 31, 1996, those shares of
common stock were recorded on the Company's balance sheet at a value of
$768,451.
Operating Leases
Each facility, which includes the land, buildings, improvements and related
rights (the "Leased Properties") owned by the Company is leased to a health care
provider pursuant to a long-term lease (collectively, the "Leases"). The
-5-
<PAGE> 6
Leases generally have a fixed term of 10 to 13 years and contain multiple five
to ten-year renewal options. Each Lease is a triple net lease requiring the
lessee to pay rent and all additional charges incurred in the operation of the
Leased Property. The lessees are required to repair, rebuild and maintain the
Leased Properties.
The Company's Leased Properties aggregated approximately $153,623,000 at
December 31, 1996. The base rents range from approximately 8.3% to 15.9% per
annum of the Company's equity investment in the Leased Properties. The base
rents for the renewal periods are generally fixed rents set at a spread above
the Treasury yield for the corresponding period. In addition, the Company
typically charges a lease commitment fee at the initiation of the transaction.
Permanent Mortgage Loans
The Company's investments in permanent mortgage loans are structured to provide
the Company with interest income, principal amortization and commitment fees.
Virtually all of the approximately $292,442,000 of permanent mortgage loans as
of December 31, 1996 were first mortgage loans.
The interest rate on the Company's investments in permanent mortgage loans for
operating facilities ranges from 10.3% to 13.0% per annum on the outstanding
balances. The yield to the Company on permanent mortgage loans depends upon a
number of factors, including the stated interest rate, average principal amount
outstanding during the term of the loan, the amount of the commitment fee
charged at the inception of the loan, the interest rate adjustments and the
additional interest earned.
The permanent mortgage loans for operating facilities made through December 31,
1996 are generally subject to seven to ten year terms with 25-year amortization
schedules that provide for a balloon payment of the outstanding principal
balance at the end of the term. Generally, the permanent mortgage loans provide
five to seven years of prepayment protection.
Construction Financing
The Company provides construction financing that by their terms converts either
into a long-term operating lease or mortgage loan upon the completion of the
facilities. Generally, the rates on the outstanding balances of the Company's
construction financings are 250 to 350 basis points over the prime rate of a
specified financial institution. The Company also typically charges a commitment
fee at the commencement of the financing. The construction financing period
commences upon funding and terminates upon the earlier of the completion of
development of the applicable facility or the end of a specified period,
generally 12 to 18 months. During the term of the construction financing, funds
are advanced pursuant to draw requests made by the operator in accordance with
the terms and conditions of the applicable loan agreement, which terms require,
among other things, a site visit by a Company representative prior to the
advancement of funds. Monthly payments are made on the total amount of the
proceeds advanced during the development period.
During the construction financing period, the Company generally requires
additional security and collateral in the form of either payment and
performance bonds and/or completion guarantees by either one, or a combination
of, the operator's parent entity, other affiliates of the operator, or one or
more of the individual principals of the operator.
At December 31, 1996, the Company had outstanding construction financings of
$71,912,000 and was committed to providing additional financing of approximately
$69,308,000 to complete construction.
-6-
<PAGE> 7
BORROWING POLICIES
The Company may arrange for long-term borrowing from banks, private placements
to institutional investors, or public offerings. For other short-term purposes,
the Company may, from time to time, negotiate lines of credit, or arrange for
other short-term borrowing from banks or others.
In addition, the Company may incur mortgage indebtedness on real estate that it
has acquired through purchase, foreclosure or otherwise. When terms are deemed
favorable, the Company may invest in properties subject to existing loans and
mortgages. In addition, the Company may obtain financing for unleveraged
properties in which it has invested or may refinance properties acquired on a
leveraged basis.
Under documents pertaining to existing indebtedness, the Company is subject to
various restrictions with respect to secured and unsecured indebtedness.
ALLOWANCE FOR LOSSES
The Company maintains an allowance for possible losses that is evaluated
quarterly to determine its adequacy. See Notes 1 and 5 of Notes to Financial
Statements. At December 31, 1996, $6,000,000 of the total allowance of
$9,787,000 was allocated to two specific properties. The Company believes that
its allowance is adequate.
COMPETITION
The Company competes with other real estate investment trusts, real estate
partnerships, banks, insurance companies and other investors in the acquisition,
leasing and financing of health care facilities.
The operators of the facilities compete on a local and regional basis with
operators of facilities that provide comparable services. Operators compete for
patients and residents based on a number of factors, including quality of care,
reputation, physical appearance of facilities, services offered, family
preferences, physicians, staff and price.
EMPLOYEES
As of December 31, 1996, the Company employed 19 full-time employees.
CERTAIN GOVERNMENT REGULATIONS
The Company invests in single purpose health care facilities. The Company's
customers must comply with the licensing requirements of federal, state and
local health agencies, and with the requirements of municipal building codes,
health codes and local fire departments. In granting and renewing a facility's
license, the state health agency considers, among other things, the physical
buildings and equipment, the qualifications of the administrative personnel and
clinical staffs, the quality of health care programs and compliance with
applicable laws.
Many of the facilities operated by the Company's customers receive a substantial
portion of their revenues from the federal Medicare program and state Medicaid
programs; therefore, the Company's revenues may be indirectly affected by
changes in these programs. The amounts of program payments can be changed by
legislative or regulatory actions and by determinations by agents for the
programs. Since Medicaid programs are funded by both the states and the federal
government, the amount of payments can be affected by changes at either the
state or federal level. There is no assurance that payments under these programs
will remain at levels comparable to present levels or be sufficient to cover
costs allocable to these patients.
Under Medicare and Medicaid programs, acute care hospitals are generally paid a
fixed amount per discharge (based on the patient's diagnosis) for inpatient
services. Behavioral and rehabilitation hospitals are generally paid on a cost
basis, subject to certain limitations on allowable costs; however, proposals
have been made to change the system to a diagnosis-based fixed payment per
discharge.
-7-
<PAGE> 8
Medicare and Medicaid programs have traditionally reimbursed nursing facilities
for the reasonable direct and indirect allowable costs incurred in providing
routine services (as defined by the programs), subject to certain cost ceilings.
However, many states have converted to a system based on prospectively
determined fixed rates, which may be based in part on historical costs.
Medicare and Medicaid regulations could adversely affect the resale value of the
Company's health care facilities. Medicare regulations provide that when a
facility changes ownership (by sale or under certain lease transactions),
reimbursement for depreciation and interest will be based on the lesser of the
cost to the new owner or the historical cost of the original owner. Medicaid
regulations allow a limited increase in the valuation of nursing facilities (but
not hospitals) during the time the seller owned the facility. Other Medicare and
Medicaid regulations provide that upon resale, facilities are responsible to pay
back prior depreciation reimbursement payments that are "recaptured" as a result
of the sale.
Health care facilities that participate in Medicare or Medicaid must meet
extensive program requirements, including physical plant and operational
requirements, which are revised from time to time. Such requirements may include
a duty to admit Medicare and Medicaid patients, limiting the ability of the
facility to increase its private pay census beyond certain limits. Medicare and
Medicaid facilities are regularly inspected to determine compliance, and may be
excluded from the programs--in some cases without a prior hearing--for failure
to meet program requirements.
Under the Medicare program, "peer review organizations" have been established to
review the quality and appropriateness of care rendered by health care
providers. These organizations may not only deny claims that fail to meet their
criteria, but can also fine and/or recommend termination of participation in the
program.
Recent changes in the Medicare and Medicaid programs will likely result in
increased use of "managed care" organizations to meet the needs of program
beneficiaries. These organizations selectively contract with health care
facilities, resulting in some facilities being excluded from the ability to
serve program beneficiaries.
Health care facilities also receive a substantial portion of their revenues from
private insurance carriers, health maintenance organizations, preferred provider
organizations, self-insured employees and other health benefit payment
arrangements. Such payment sources increasingly pay facilities under contractual
arrangements that include a limited panel of providers and/or discounted or
other special payment arrangements, including arrangements that shift the risk
of high utilization to the providers. A number of states have established
rate-setting agencies which control inpatient health care facility rates,
including private pay rates.
Recent proposals to significantly reduce Medicare and Medicaid spending at the
federal level could reduce revenues of the Company's customers. President
Clinton recently proposed legislation that would, over six years, reduce
Medicare spending by an estimated $138 billion. The proposed reductions include
specific elements that would affect the Company's customers, including a
prospective payment system for skilled nursing facilities that would reduce
payments by approximately $9 billion. It is impossible to predict with any
certainty what form any such legislation may ultimately take.
In order to meet a federal requirement, most states required providers to obtain
certificates of need prior to construction of inpatient facilities and certain
outpatient facilities. However, in 1987, the federal requirement was repealed.
Some states have repealed these requirements, which may result in increased
competition, and other states are considering similar repeals.
Nursing facilities compete with other subacute care providers, including
rehabilitation centers and hospitals. Many of these providers have underutilized
facilities and are converting some or all of their facilities into nursing
facilities. Some of these entities operate on a tax-exempt basis, which gives
them a capital cost advantage. Furthermore, some states have granted rest homes
the ability to provide limited nursing care services.
-8-
<PAGE> 9
Certain states have adopted pre-admission screening and other programs to
promote utilization of outpatient and home-based services as an alternative to
inpatient facility services. Recent changes in Medicaid regulations allow states
to use Medicaid funding for home and community-based alternatives to inpatient
care.
TAXATION
General
A corporation, trust or association meeting certain requirements may elect to be
treated as a "real estate investment trust." Beginning with its first fiscal
year and in all subsequent years, the Company has elected to be treated as a
real estate investment trust under Sections 856 to 860, inclusive, of the
Internal Revenue Code of 1986, as amended (the "Code"). The Company intends to
operate in such manner as to continue to qualify as a real estate investment
trust for federal income tax purposes. No assurance can be given that the actual
results of the Company's operations for any one taxable year will satisfy such
requirements.
To qualify as a real estate investment trust, the Company must satisfy a variety
of complex requirements each year, including organizational and stock ownership
tests and percentage tests relating to the sources of its gross income, the
nature of its assets and the distribution of its income.
Generally, for each taxable year during which the Company qualifies as a real
estate investment trust, it will not be taxed on the portion of its taxable
income (including capital gains) that is distributed to shareholders. Any
undistributed income or gains will be taxed to the Company at regular corporate
tax rates. The Company will be subject to tax at the highest corporate rate on
its net income from foreclosure property, regardless of the amount of its
distributions. The highest corporate tax rate is currently 35%. The Company may
elect to treat any real property it acquires by foreclosure as foreclosure
property, including any property acquired in future foreclosure actions brought
with respect to the two loans in default. This would permit the Company to hold
such property for up to two years without adverse consequences. Subject to
certain limitations, the Company will also be subject to an additional tax equal
to 100% of the net income, if any, derived from prohibited transactions. A
prohibited transaction is defined as a sale or disposition of inventory-type
property or property held by the Company primarily for sale to customers in the
ordinary course of its trade or business, which is not property acquired on
foreclosure.
The Company is subject to a nondeductible federal excise tax equal to 4% of the
amount, if any, by which 85% of its ordinary income plus 95% of its capital gain
net income (plus distribution deficiencies from prior years) exceeds
distributions actually paid or treated as paid to stockholders during the
taxable year, plus current year income upon which the Company pays tax and any
overdistribution from prior years. Due to the growth of the Company's income,
primarily as a result of large capital gains from the exercise of purchase
options under leases, the Company did not satisfy this requirement in 1996, 1995
and 1994 and incurred an excise tax of approximately $317,000, $326,000 and
$575,000 respectively, in those years. There is a cumulative underdistribution
of $15,930,000 that will carry over to 1997 and later years until reduced by
distributions in a subsequent year that exceed the percentage of that year's
income that is required to be distributed currently.
Failure To Qualify
While the Company intends to operate so as to qualify as a real estate
investment trust under the Code, if in any taxable year the Company fails to
qualify, and certain relief provisions do not apply, its taxable income would be
subject to tax (including alternative minimum tax) at corporate rates. If that
occurred, the Company might have to dispose of a significant amount of its
assets or incur a significant amount of debt in order to pay the resulting
federal income tax. Further distributions to its stockholders would not be
deductible by the Company nor would they be required to be made.
Distributions out of the Company's current or accumulated earnings and profits
would be taxable to stockholders as dividends and would be eligible for the
dividends received deduction for corporations. No portion of any distributions
would be eligible for designation as a capital gain dividend.
-9-
<PAGE> 10
Unless entitled to relief under specific statutory provisions, the Company also
would be disqualified from taxation as a real estate investment trust for the
four taxable years following the year during which qualification was lost.
The foregoing is only a summary of some of the significant federal income tax
considerations affecting the Company and is qualified in its entirety by
reference to the applicable provisions of the Code, the rules and regulations
promulgated thereunder, and the administrative and judicial interpretations
thereof. Stockholders of the Company are urged to consult their own tax advisors
as to the effects of these rules and regulations on them. In particular, foreign
stockholders should consult with their tax advisors concerning the tax
consequences of ownership of shares in the Company, including the possibility
that distributions with respect to the shares will be subject to federal income
tax withholding.
SUBSIDIARIES AND AFFILIATES
On November 1, 1993 and July 9, 1996, the Company formed two wholly-owned
subsidiaries, HCRI Pennsylvania Properties, Inc. and HCRI Overlook Green, Inc.,
respectively. These Pennsylvania corporations were created to own real estate in
the State of Pennsylvania.
On December 27, 1996 and December 30, 1996, the Company formed a wholly-owned
subsidiary, HCRI Texas Properties, Inc., a Delaware corporation, and HCRI Texas
Properties, Ltd., a Texas limited partnership, respectively. Both entities were
created in connection with real estate investments in the State of Texas.
-10-
<PAGE> 11
ITEM 2. PROPERTIES
The Company's headquarters are currently located at One SeaGate, Suite 1500,
Toledo, Ohio 43604. The following table sets forth certain information regarding
the facilities that comprise the Company's investments as of December 31, 1996.
<TABLE>
<CAPTION>
Number Number
of of Beds/ Total Annualized
Facility Location Facilities Units Investment(1) Income(2)
----------------- ---------- -------- ------------- ----------
NURSING FACILITIES:
<S> <C> <C> <C> <C>
Arizona ................ 3 351 16,913,172 1,938,824
California ............. 1 122 3,888,000 438,178
Colorado ............... 1 180 5,406,917 570,970
Connecticut ............ 8 1,208 40,016,697 4,546,446
Florida ................ 3 420 9,350,979 1,077,344
Georgia ................ 1 170 4,709,514 506,744
Idaho .................. 3 404 18,889,864 2,035,777
Indiana ................ 1 50 1,183,919 172,734
Kentucky ............... 1 92 4,609,386 491,500
Massachusetts .......... 10 1,479 62,436,891 6,585,578
Michigan ............... 2 300 4,816,756 579,404
Missouri ............... 3 320 11,241,547 1,255,022
New York ............... 1 200 7,456,928 811,314
Ohio ................... 7 762 28,412,360 3,260,149
Oregon ................. 1 121 5,833,229 593,239
Pennsylvania ........... 2 287 13,126,237 1,482,105
Texas .................. 7 1,120 20,724,155 2,225,828
West Virginia .......... 1 65 1,324,018 236,734
---- ----------- ----------- -----------
Total ................. 56 7,651 260,340,569 28,807,890
ASSISTED LIVING FACILITIES:
Alabama ................ 1 71 3,217,265 333,952
Florida ................ 9 590 31,255,609 3,306,701
New Jersey ............. 1 264 22,760,823 2,335,107
New Mexico ............. 2 159 8,087,500 882,699
New York ............... 5 606 42,285,000 4,477,574
North Carolina ......... 5 256 13,063,901 1,472,907
Oklahoma ............... 16 532 24,313,141 2,511,030
Pennsylvania ........... 4 451 27,450,862 3,040,316
Texas .................. 16 978 54,629,954 5,831,494
Virginia ............... 4 245 9,558,847 1,140,658
---- ----------- ----------- -----------
Total ................. 63 4,152 236,622,902 25,332,438
RETIREMENT CENTERS:
Arizona ................ 1 164 2,420,582 302,573
California ............. 1 92 2,420,582 302,573
Illinois ............... 2 320 13,034,770 527,963
Indiana ................ 1 61 1,926,948 205,027
Missouri ............... 1 195 5,158,000 644,750
New Mexico ............. 1 150 8,396,735 361,178
North Carolina ......... 1 126 13,000,000 1,368,770
Ohio ................... 2 200 3,250,000 68,100
Texas .................. 1 58 4,536,000 471,290
---- ----------- ----------- -----------
Total ................. 11 1,366 54,143,617 4,252,224
SPECIALTY CARE FACILITIES:
Arkansas ............... 1 117 27,000,000 2,948,400
California ............. 1 162 10,875,833 1,280,086
Minnesota .............. 1 N/A 677,480 84,685
Texas .................. 1 70 13,750,000 1,431,375
Washington D.C ......... 1 110 17,245,787 1,997,062
---- ----------- ----------- -----------
Total ................. 5 459 69,549,100 7,741,608
BEHAVIORAL CARE FACILITIES:
Florida ................ 2 294 6,727,804 N/A
---- ----------- ----------- -----------
TOTAL ALL FACILITIES: . 137 13,922 627,383,992 66,134,160
==== =========== =========== ===========
</TABLE>
- --------------------------
(1) Reflects gross investment less specified allowance for losses, except for
facilities under construction, for which the Company's total investment
commitment is reflected.
(2) Reflects contract rate of annual base rent or interest received or to be
received upon completion of construction.
-11-
<PAGE> 12
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
The following table sets forth, for the periods indicated, the high and low
prices of the Company's Common Stock on the New York Stock Exchange, as reported
on the Composite Tape and dividends paid per share. There were 5,446
shareholders of record as of December 31, 1996.
<TABLE>
<CAPTION>
SALES PRICE
-------------------- DIVIDENDS
HIGH LOW PAID
1996 ---- --- ----
<S> <C> <C> <C>
First Quarter........................................... $ 22.625 $ 17.875 $ 0.52
Second Quarter.......................................... 23 20.50 0.52
Third Quarter .......................................... 23.25 20.875 0.52
Fourth Quarter.......................................... 25.25 23 0.52
1995
First Quarter........................................... $ 22.375 $ 19.875 $ 0.515
Second Quarter.......................................... 23.125 20.375 0.52
Third Quarter........................................... 21.50 15.50 0.52
Fourth Quarter.......................................... 19.125 15.75 0.52
</TABLE>
-12-
<PAGE> 13
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for the five years ended December 31, 1996
are derived from the audited consolidated financial statements of the Company.
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------
(In thousands, except per share data)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
OPERATING DATA
<S> <C> <C> <C> <C> <C>
Revenues .......................... $54,402 $44,596 $42,732 $36,018 $28,908
Expenses:
Interest expense ................ 14,635 12,752 9,684 10,817 8,160
Provision for depreciation ...... 2,427 1,580 1,385 790 382
General and administrative
and other expenses (1) ........ 6,664 10,835 6,710 4,356 3,851
Settlement of management
contract (2) .................. -- 5,794 -- -- --
------- ------- ------- ------- -------
Total expenses .................... 23,726 30,961 17,779 15,963 12,393
------- ------- ------- ------- -------
Net income ........................ $30,676 $13,635 $24,953 $20,055 $16,515
======= ======= ======= ======= =======
OTHER DATA
Average number of shares
outstanding ..................... 14,093 11,710 11,519 9,339 8,629
Cash available for distribution (3) $37,075 $27,938 $31,697 $22,780 $18,654
PER SHARE
Net income ........................ $ 2.18 $ 1.16 $ 2.17 $ 2.15 $ 1.91
Cash distributions ................ $ 2.08 $ 2.075 $ 2.01 $ 1.93 $ 1.85
December 31,
------------------------------------------------
(In thousands)
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
BALANCE SHEET DATA
<S> <C> <C> <C> <C> <C>
Real estate investments, net $512,894 $351,924 $318,433 $276,858 $223,126
Total assets ..................... 519,831 358,092 324,102 285,024 226,207
Total debt ....................... 184,395 162,760 128,273 96,311 103,719
Total liabilities ................ 194,295 170,494 134,922 100,892 107,259
Total shareholders' equity ....... 325,536 187,598 189,180 184,132 118,948
</TABLE>
(1) General and administrative and other expenses include loan expense,
management fees through November 30, 1995, provision for losses, expenses
related to disposition of investments and other operating expenses.
(2) On November 30, 1995, the Company's advisor merged into the Company.
Consideration for this transaction totaled approximately $5,048,000 which
was solely comprised of 282,407 Shares. In addition, the Company acquired
approximately $46,000 in net assets and incurred approximately $792,000 of
related transaction expenses. The consideration, plus related transaction
expenses, were accounted for as a settlement of a management contract.
(3) Cash available for distribution is defined as net cash provided from
operating activities, but does not consider the effects of changes in
operating assets and liabilities such as other receivables and accrued
expenses. The Company uses cash available for distribution in evaluating
investments and the Company's operating performance. Cash available for
distribution does not represent cash generated from operating activities in
accordance with generally accepted accounting principles, is not necessarily
indicative of cash available to fund cash needs, and should not be
considered as an alternative to net income as an indicator of the Company's
operating performance or as an alternative to cash flow as a measure of
liquidity.
-13-
<PAGE> 14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Company's net real estate investments totaled
approximately $512,894,000, which included 56 nursing facilities, 63 assisted
living facilities, 11 retirement centers, five specialty care facilities and two
behavioral care facilities. The Company funds its investments through a
combination of long-term and short-term financing, utilizing both debt and
equity.
During 1996, the Company provided permanent mortgage financings of $69,970,000,
invested $31,900,000 in operating leases and made construction advances of
$93,993,000. During 1996, the Company received principal payments on real estate
mortgages of $3,080,000, net repayments on working capital loans of $2,053,000
and proceeds of $52,047,000 from the prepayment of mortgage loans.
Also during 1996, 16 of the above-mentioned construction loans completed the
construction phase of the Company's investment process and were converted to
investments in operating leases, with an aggregate investment of $26,418,000,
and 4 construction loans converted to permanent mortgage loans with an aggregate
investment balance of $24,298,000.
As of December 31, 1996, the Company had shareholders' equity of $325,536,000
and a total outstanding debt balance of approximately $184,395,000, which
represents a debt to equity ratio of 0.57 to 1.0.
In April 1996, the Company issued Senior Notes in the aggregate principal amount
of $30,000,000 which mature in 2001 and 2003, and have a weighted average
interest rate of 7.18%. The notes are secured by approximately $40,000,000 of
assets.
In May 1996, the Company issued 2,322,200 shares of Common Stock, $1.00 par
value per share, at the price of $22.00 per share, which generated net proceeds
of $48,103,000 to the Company.
In September 1996, the Company issued 1,587,800 shares of Common Stock, $1.00
par value per share, at the price of $22.00 per share, which generated net
proceeds to the Company of $34,111,000.
In December 1996, the Company issued 2,200,000 shares of Common Stock, $1.00 par
value per share, at the price of $23.875 per share, which generated net proceeds
to the Company of $49,898,000.
As of December 31, 1996, the Company had a secured revolving line of credit
expiring March 31, 1997 in the amount of $150,000,000 bearing interest at the
lender's prime rate or LIBOR plus 1.50%. In addition, the Company had unsecured
revolving lines of credit in the amounts of $25,000,000 and $10,000,000 bearing
interest at the lenders' prime rate expiring May 31, 1997 and April 30, 1997,
respectively. At December 31, 1996, under the Company's line of credit
arrangements, available funding totaled $92,875,000.
As of February 4, 1997, the Company has effective shelf registrations on file
with the Securities and Exchange Commission under which the Company may issue up
to $300,000,000 of securities including debt, convertible debt, common and
preferred stock. The Company anticipates issuing securities under such shelf
registrations to invest in additional health care facilities and to repay
borrowings under the Company's line of credit arrangements.
As of December 31, 1996, the Company had approximately $236,277,000 in unfunded
commitments. The Company believes its liquidity and various sources of available
capital are sufficient to fund operations, finance future investments, and meet
debt service and dividend requirements.
-14-
<PAGE> 15
RESULTS OF OPERATIONS DECEMBER 31, 1996 VS. DECEMBER 31, 1995
Revenues for the year ended December 31, 1996, were $54,402,000 compared to
$44,596,000 for the year ended December 31, 1995, an increase of $9,806,000 or
22%. Revenue growth resulted primarily from increased interest income of
$5,457,000, operating lease income of $3,496,000 and loan and commitment fees of
$941,000 resulting primarily from additional real estate investments made during
the past twelve to fifteen months.
Expenses for the year ended December 31, 1996, totaled $23,726,000, a decrease
of $7,235,000 from expenses of $30,961,000 for the year ended December 31, 1995.
Expenses for the year ended December 31, 1995, were negatively influenced by
nonrecurring charges, primarily related to a $4,800,000 provision for losses and
a $5,794,000 charge for the settlement of the management contract, an expense
associated with the merger of the Company's advisor into the Company.
The provision for depreciation for the year ended December 31, 1996, totaled
$2,427,000, an increase of $848,000 over the year ended 1995 as a result of
additional operating lease investments.
Interest expense for the year ended December 31, 1996, was $14,635,000 compared
to $12,752,000 for the year ended December 31, 1995. The increase in interest
expense during 1996 was primarily due to the issuance of $30,000,000 Senior
Notes in April 1996 and higher average borrowings under the Company's line of
credit arrangements, which were offset by lower interest rates.
General and administrative expense for the year ended December 31, 1996 totaled
$4,448,000 as compared to $5,284,000 for the year ended December 31, 1995. The
expenses for the year ended December 31, 1996 were 8.18% of revenues as compared
to 11.85% for the year ended December 31, 1995.
It is the Company's intention to systematically eliminate its investments in
behavioral care facilities. As a result, at September 30, 1996, the Company
declared a disposition of investment associated with its behavioral care
portfolio. As a result, any gains realized through the repayment or sale of
investments associated with the Company's behavioral care facilities will be
added to the Company's general allowance for losses and applied against any
losses incurred through the repayment or sale of behavioral care related
investments. During the year ended December 31, 1996, the Company recorded an
$808,000 disposition of investment expense as an offset to an $808,000
prepayment fee received from the repayment of two behavioral care related
mortgage loans. Additionally, the Company's general allowance for losses was
reduced by $481,000, resulting from the repayment of these loans.
As a result of the various factors mentioned above, net income for the year
ended December 31, 1996, was $30,676,000 as compared to $13,635,000 for the year
ended December 31, 1995. Net income per share for the year ended December 31,
1996, was $2.18 versus $1.16 for the year ended December 31, 1995. The per share
increase resulted from an increase in net income offset by an increase in
average shares outstanding during 1996.
RESULTS OF OPERATIONS DECEMBER 31, 1995 VS. DECEMBER 31, 1994
Revenues for the year ended December 31, 1995, were $44,596,000 compared to
$42,732,000 for the year ended December 31, 1994, an increase of $1,864,000 or
4.4%. Revenue growth resulted primarily from increased interest income of
$6,731,000 and increased operating lease income of $872,000 resulting primarily
from additional real estate investments made during the previous twelve months.
The growth in interest income and rental income was offset by a high incidence
of prepayment fees and gains on the exercise of purchase options earned during
1994, which totaled $6,982,000 as compared to $4,082,000 for 1995.
Expenses for the year ended December 31, 1995, totaled $30,961,000, an increase
of $13,182,000 from expenses of $17,779,000 for the year ended December 31,
1994. Expenses for the year ended December 31, 1995, were negatively influenced
by nonrecurring charges, primarily related to a $4,800,000 provision for losses
and a $5,794,000 charge for the settlement of the management contract, an
expense associated with the merger of the Company's advisor into the Company.
-15-
<PAGE> 16
The provision for depreciation for the year ended December 31, 1995, totaled
$1,580,000, an increase of $194,000 over the year ended December 31, 1994 as a
result of additional operating lease investments.
Interest expense for the year ended December 31, 1995, was $12,752,000 compared
to $9,684,000 for the year ended December 31, 1994. The increase in interest
expense during 1995 was primarily due to higher average borrowings under the
Company's line of credit arrangements, and higher costs of borrowing.
General and administrative expense for the year ended December 31, 1995 totaled
$5,284,000 as compared to $5,072,000 for the year ended December 31, 1994. The
expenses for the year ended December 31, 1995 were 11.85% of revenues as
compared to 11.87% for the year ended December 31, 1994.
As a result of the various factors mentioned above, net income for the year
ended December 31, 1995, was $13,635,000 as compared to $24,953,000 for the year
ended December 31, 1994. Net income per share for the year ended December 31,
1995, was $1.16 versus $2.17 for the year ended December 31, 1994. The per share
decrease resulted from a decrease in net income.
IMPACT OF INFLATION
During the past three years, inflation has not significantly affected the
earnings of the Company because of the moderate inflation rate. Additionally,
earnings of the Company are primarily long-term investments with fixed interest
rates. These investments are mainly financed with a combination of equity,
senior notes and borrowings under the revolving lines of credit, of which a
portion is hedged with interest rate swaps. During inflationary periods, which
generally are accompanied by rising interest rates, the Company's ability to
grow may be adversely affected because the yield on new investments may increase
at a slower rate than new borrowing costs. Presuming the current inflation rate
remains moderate and long-term interest rates do not increase significantly, the
Company believes that equity and debt financing will be available.
-16-
<PAGE> 17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
REPORT OF INDEPENDENT AUDITORS
Shareholders and Directors
Health Care REIT, Inc.
We have audited the accompanying consolidated balance sheets of Health Care
REIT, Inc. as of December 31, 1996 and 1995 and the related consolidated
statements of income, shareholders' equity, and cash flows for each of the three
years in the period ended December 31, 1996. Our audits also included the
financial statement schedules listed in the Index at Item 14(a). These financial
statements and schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Health Care REIT,
Inc. at December 31, 1996 and 1995, and the consolidated results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedules, when considered
in relation to the basic financial statements taken as a whole, present fairly
in all material respects the information set forth therein.
ERNST & YOUNG LLP
January 31, 1997
Toledo, Ohio
-17-
<PAGE> 18
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31
----------------------------
1996 1995
ASSETS
Real estate investments:
<S> <C> <C>
Loans receivable .............................. $358,182,032 $291,998,722
Operating-lease properties .................... 153,622,844 58,628,509
Direct financing leases ....................... 10,876,071 11,246,492
------------ ------------
522,680,947 361,873,723
Less allowance for losses ..................... 9,786,940 9,950,000
------------ ------------
Net real estate investments ..................... 512,894,007 351,923,723
Other Assets:
Deferred loan expenses ........................ 1,431,537 1,747,537
Cash and cash equivalents ..................... 581,390 860,350
Investment securities available for sale ...... 768,451 845,297
Receivables and other assets .................. 4,155,812 2,715,146
------------ ------------
6,937,190 6,168,330
------------ ------------
Total assets .................................... $519,831,197 $358,092,053
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Borrowings under line of credit arrangements .. $ 92,125,000 $106,700,000
Senior notes .................................. 82,000,000 52,000,000
Other long-term obligations ................... 10,270,011 4,059,639
Accrued expenses and other liabilities ........ 9,900,045 7,734,618
------------ ------------
Total liabilities ............................... 194,295,056 170,494,257
Shareholders' equity:
Preferred Stock, $1.00 par value:
Authorized - 10,000,000 shares
Issued and outstanding - None
Common Stock, $1.00 par value:
Authorized - 40,000,000 shares
Issued and outstanding - 18,320,291
shares in 1996 and 12,034,196
shares in 1995 .............................. 18,320,291 12,034,196
Capital in excess of par value ................ 298,280,949 168,800,194
Undistributed net income ...................... 8,166,450 5,918,109
Unrealized gains on investment
securities available for sale .............. 768,451 845,297
------------ ------------
Total shareholders' equity ...................... 325,536,141 187,597,796
------------ ------------
Total liabilities and shareholders' equity ....... $519,831,197 $358,092,053
============ ============
</TABLE>
See accompanying notes
-18-
<PAGE> 19
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31
1996 1995 1994
----- ---- ----
Revenues:
<S> <C> <C> <C>
Interest on loans receivable ....... $36,734,438 $30,836,649 24,545,933
Prepayment fees .................... 3,058,556 4,081,923 1,492,538
Direct financing leases:
Lease income ..................... 1,464,091 1,528,655 4,353,192
Gain on exercise of options ...... 421,167 5,389,399
Operating leases:
Rents ............................ 9,847,853 6,351,822 5,480,232
Gain on exercise of options ...... 155,270 100,029
Loan and commitment fees ........... 2,607,292 1,666,286 1,184,024
Interest and other income .......... 113,148 130,592 186,684
----------- ----------- -----------
54,401,815 44,595,927 42,732,031
Expenses:
Interest:
Line of credit arrangements ...... 8,243,975 7,472,418 3,537,555
Senior notes and other long-
term obligations ................. 6,390,810 5,279,232 6,146,589
Loan expense ....................... 808,182 752,115 637,625
Management fees .................... 2,385,535 3,086,988
Provision for depreciation ......... 2,427,252 1,579,544 1,385,077
Provision for losses ............... 600,000 4,800,000 1,000,000
Disposition of investment .......... 807,791
Settlement of management contract .. 5,793,534
Other operating expenses ........... 4,448,243 2,898,576 1,985,279
----------- ----------- -----------
23,726,253 30,960,954 17,779,113
----------- ----------- -----------
Net income ........................... $30,675,562 $13,634,973 $24,952,918
=========== =========== ===========
Net income per share ................. $ 2.18 $ 1.16 $ 2.17
Average number of shares outstanding . 14,093,028 11,709,642 11,519,123
</TABLE>
See accompanying notes
-19-
<PAGE> 20
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Capital in
Common Excess of Undistributed Unrealized
Stock Par Value Net Income Gains Total
----------- ------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
Balances at January 1, 1994 $ 11,446,249 $ 158,013,957 $ 14,671,622 $ $ 184,131,828
Net income 24,952,918 24,952,918
Proceeds from issuance of
shares under the dividend
reinvestment and stock
option plans 148,866 3,072,801 3,221,667
Cash dividends paid--$2.01
per share (23,126,638) (23,126,638)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1994 11,595,115 161,086,758 16,497,902 189,179,775
Net income 13,634,973 13,634,973
Proceeds from issuance of
shares under the dividend
reinvestment and stock
option plans 156,674 2,947,818 3,104,492
Issuance of shares related
to settlement of
management contract 282,407 4,765,618 845,297 5,048,025
Unrealized gains on investment
securities available for sale 845,297
Cash dividends paid--$2.075
per share (24,214,766) (24,214,766)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1995 12,034,196 168,800,194 5,918,109 845,297 187,597,796
Net income 30,675,562 30,675,562
Proceeds from issuance of
shares under the dividend
reinvestment and stock
option plan 176,095 3,479,211 3,655,306
Proceeds from sale of shares,
net of expenses of
$6,433,456 6,110,000 126,001,544 132,111,544
Change in unrealized gains
on investment securities
available for sale (76,846) (76,846)
Cash dividends paid -
$2.08 per share (28,427,221) (28,427,221)
------------- ------------- ------------- ------------- -------------
Balances at December 31, 1996 $ 18,320,291 $ 298,280,949 $ 8,166,450 $ 768,451 $ 325,536,141
============= ============= ============= ============= =============
</TABLE>
See accompanying notes
-20-
<PAGE> 21
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31
1996 1995 1994
------ ------ -----
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 30,675,562 $ 13,634,973 $ 24,952,918
Adjustments to reconcile net income to
net cash provided from operating
activities:
Amortization of loan and
organization expenses 810,339 749,270 639,781
Provision for losses 600,000 4,800,000 1,000,000
Disposition of investment 807,791
Provision for depreciation 2,461,013 1,579,544 1,385,077
Settlement of management contract 5,001,624
Loan and commitment fees earned
less than cash received 1,764,417 1,466,865 693,213
Direct financing lease income less
than cash received 90,422 181,229 905,860
Interest income (more than) less
than cash received (134,433) 524,907 2,120,035
(Increase) decrease in accrued
expenses and other liabilities 401,010 (381,671) 856,127
Increase in receivables and
other assets (1,256,386) (403,955) (575,571)
------------- ------------- -------------
Net cash provided from operating activities 36,219,735 27,152,786 31,977,440
INVESTING ACTIVITIES
Investment in loans receivable (168,845,040) (107,296,680) (118,204,990)
Investment in operating-lease properties (66,082,923) (2,976,000) (14,053,050)
Investment in direct financing leases (1,300,000)
Principal collected on loans 60,658,661 69,696,762 48,760,717
Proceeds from exercise of purchase options 9,507,988 38,330,065
Other (220,198) (3,150)
------------ ------------- -------------
Net cash used in investing activities (164,981,512) (40,579,068) (46,467,258)
FINANCING ACTIVITIES
Net (decrease) increase under line of
credit arrangements (14,575,000) 35,800,000 35,900,000
Borrowings under senior notes 30,000,000
Assumption of mortgage loan payable 6,539,434
Principal payments on other long-term
obligations (329,062) (1,313,151) (3,938,325)
Net proceeds from the issuance of shares 135,766,850 3,104,492 3,221,667
Increase in deferred loan expense (492,184) (25,392) (1,527,751)
Cash distributions to shareholders (28,427,221) (24,214,766) (23,126,638)
------------- ------------- -------------
Net cash provided from financing activities 128,482,817 13,351,183 10,528,953
------------- ------------- -------------
Decrease in cash and cash equivalents (278,960) (75,099) (3,960,865)
Cash and cash equivalents at beginning of year 860,350 935,449 4,896,314
------------- ------------- -------------
Cash and cash equivalents at end of year $ 581,390 $ 860,350 $ 935,449
============= ============= =============
</TABLE>
See accompanying notes
-21-
<PAGE> 22
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996
1. ACCOUNTING POLICIES AND RELATED MATTERS
INDUSTRY
The Company is a self-administered real estate investment trust that invests
primarily in long-term care facilities, which include nursing homes, assisted
living facilities, and retirement centers. The Company also invests in specialty
care facilities.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly owned subsidiaries after the elimination of all significant
intercompany accounts and transactions.
USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
LOANS RECEIVABLE
Loans receivable consist of construction-period loans maturing in two years or
less, working capital loans to related parties, and long-term mortgage loans.
Interest income on loans is recognized as earned based upon the principal amount
outstanding. The loans are generally collateralized by a first or second
mortgage on or assignment of partnership interest in the related facilities
which consist of nursing homes, assisted living facilities, retirement centers,
behavioral care facilities and specialty care hospitals.
OPERATING-LEASE PROPERTIES
Certain properties owned by the Company are leased under operating leases. These
properties are recorded at the lower of cost or net realizable value.
Depreciation is provided for at rates which are expected to amortize the cost of
the assets over their estimated useful lives using the straight-line method. The
leases provide for payment of all taxes, insurance and maintenance by the
lessees. Operating lease income includes the rent payments, which are recognized
on a straight-line basis over the minimum lease period.
DIRECT FINANCING LEASES
Certain properties owned by the Company are subject to long-term leases which
are accounted for by the direct financing method. The leases provide for payment
of all taxes, insurance and maintenance by the lessees. The leases are generally
for a term of 20 years and include an option to purchase the properties
generally after a period of five years. Option prices equal or exceed the
Company's original cost of the property. Income from direct financing leases is
recorded based upon the implicit rate of interest over the lease term. This
income is greater than the amount of cash received during the first six to seven
years of the lease term.
-22-
<PAGE> 23
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
CAPITALIZATION OF CONSTRUCTION PERIOD INTEREST
The Company capitalizes interest costs associated with funds used to finance the
construction of facilities. The amount capitalized is based upon the borrowings
outstanding during the construction period using the rate of interest which
approximates the Company's cost of financing.
ALLOWANCE FOR LOSSES
The allowance for losses is maintained at a level believed adequate to absorb
potential losses in the Company's real estate investments. The determination of
the allowance is based on a quarterly evaluation of these earning assets (in the
case of direct financing leases, estimated residual values), including general
economic conditions, estimated collectibility of loan and lease payments,
reappraisals (where appropriate), and the recoverability of the carrying amount
of these investments in relationship to their net realizable value.
DEFERRED LOAN EXPENSES
Deferred loan expenses are costs incurred in acquiring financing for properties.
The Company amortizes these costs by the straight-line method over the term of
the debt.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of all highly liquid investments with an
original maturity of three months or less.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Management determines the appropriate classification of a security at the time
of acquisition and reevaluates such designation as of each balance sheet date.
Investment securities available for sale are stated at fair value, with
unrealized gains and losses reported in a separate component of shareholders'
equity. At December 31, 1996, available-for-sale securities are the common stock
of a corporation, which were obtained by the Company at no cost.
LOAN AND COMMITMENT FEES
Loan and commitment fees are earned by the Company for its agreement to provide
direct and standby financing to, and credit enhancement for, owners of health
care facilities. The Company amortizes loan and commitment fees over the initial
fixed term of the lease, the mortgage or the construction period related to such
investments.
FEDERAL INCOME TAX
No provision has been made for federal income taxes since the Company has
elected to be treated as a real estate investment trust under the applicable
provisions of the Internal Revenue Code, and the Company believes that it has
met the requirements for qualification as such for each taxable year. See Note
8.
-23-
<PAGE> 24
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. ACCOUNTING POLICIES AND RELATED MATTERS (CONTINUED)
STOCK OPTIONS
The Company typically grants stock options for a fixed number of shares to
employees with an exercise price equal to fair value of the shares at the date
of the grant. The Company has elected to follow APB Opinion No. 25, Accounting
for Stock Issued to Employees in accounting for its employee stock options, and,
accordingly, recognizes no compensation expense for the stock option grants when
the market price on the underlying stock on the date of grant equals the
exercise price of the Company's employee stock option. The effect of applying
Financial Accounting Standards Board (FASB) Statement No. 123, Accounting for
Stock-Based Compensation, fair value method to the Company's stock based awards
results in net income and earnings per share that are not materially different
from amounts reported.
NET INCOME PER SHARE
Net income per share has been computed by dividing net income by the weighted
average number of common stock and common stock equivalents outstanding during
the year.
2. LOANS RECEIVABLE
<TABLE>
<CAPTION>
The following is a summary of loans receivable:
December 31
1996 1995
------------------------------------
<S> <C> <C>
Mortgage loans $290,515,494 $245,150,474
Mortgage loans to related parties 1,926,949 22,333,209
Construction loans 61,012,838 17,735,699
Working capital loans to related parties 4,726,751 6,779,340
------------ ------------
TOTALS $358,182,032 $291,998,722
============ ============
</TABLE>
Loans to related parties (various entities whose ownership includes three
Company directors and former officers) included above are at competitive rates,
and are equal to or greater than the Company's net interest cost on borrowings
to support such loans. The amount of interest income and loan and commitment
fees from related parties amounted to $3,089,376, $3,378,347 and $3,810,340 for
1996, 1995 and 1994, respectively.
-24-
<PAGE> 25
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. LOANS RECEIVABLE (CONTINUED)
The following is a summary of mortgage loans at December 31, 1996:
Final Number Principal
Payment of Amount at Carrying
Due Loans Payment Terms Inception Amount
----- ------- --------------- ----------- -------
<S> <C> <C> <C>
In Default 2 Loans in default which are currently due and
not accruing interest. $13,700,000 $12,727,804
1997 1 Monthly payments of $7,531, including
interest of 11.41% 250,000 55,556
1998 1 Monthly payment of $53,772, including
interest of 12.67% 5,200,000 5,158,000
1999 1 Monthly payment of $15,584, including
interest of 10.64% 1,850,000 1,926,949
2001 2 Monthly payments from $39,500 to $51,217,
including interest from 10.56% to 12.0% 6,303,509 6,084,397
2002 1 Monthly payment of $24,663, including
interest at 12.0% 2,055,000 2,029,694
2003 1 Monthly payment of $45,828, including
interest of 10.76% 4,761,192 4,709,514
2006 1 Monthly payment of $53,554, including
interest of 10.82% 5,537,450 5,530,166
2007 9 Monthly payments from $5,447 to $42,708,
including interest from 10.78% to 12.50% 21,398,117 17,700,225
2008 9 Monthly payments from $18,054 to $276,963,
including interest from 10.38% to 13.01% 56,950,000 56,237,236
2009 5 Monthly payments from $24,933 to $62,377,
including interest from 10.55% to 11.27% 24,645,610 24,625,201
2010 7 Monthly payments from $36,316 to $129,000,
including interest from 10.32% to 10.97% 52,772,500 52,729,322
2012 1 Monthly payment of $40,078, including
interest of 11.86% 3,843,000 3,838,786
2014 1 Monthly payment of $43,809, including
interest of 12.94% 3,900,000 3,885,423
2015 7 Monthly payments from $22,479 to $113,940,
including interest from 10.51% to 11.77% 46,597,063 46,245,611
2016 9 Monthly payments from $12,798 to $71,333,
including interest from 10.39% to 10.97% 44,699,000 44,699,000
2017 1 Monthly payment of $37,839, including
interest of 10.66% 4,259,559 4,259,559
------------ ------------
TOTALS $298,722,000 $292,442,443
============ ============
</TABLE>
One loan (in default) has a prior lien of approximately $1,195,000; and six
loans maturing in 2007 have prior liens aggregating $1,420,000.
-25-
<PAGE> 26
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
3. INVESTMENT IN LEASES
The following are the components of operating-lease properties:
December 31
1996 1995
---------------------------------
<S> <C> <C>
Land $ 12,948,930 $ 4,971,670
Buildings 125,687,310 54,251,570
Equipment 10,569,093 3,777,143
Accumulated depreciation (6,482,065) (4,371,874)
------------- -------------
142,723,268 58,628,509
Construction in progress 10,899,576
------------- -------------
$ 153,622,844 $ 58,628,509
============= =============
The following are the components of investments in direct financing leases:
December 31
1996 1995
-------------------------------
<S> <C> <C>
Total minimum lease payments receivable $ 17,290,955 $ 18,833,646
Estimated unguaranteed residual values of
leased properties 5,778,943 6,063,649
Unearned income (12,193,827) (13,650,803)
------------ ------------
Investment in direct financing leases $ 10,876,071 $ 11,246,492
============ ============
</TABLE>
The leases contain an option to purchase the leased property. Total minimum
lease payments are computed assuming that the option will not be exercised.
At December 31, 1996, future minimum lease payments receivable (assuming that
the option will not be exercised) are as follows:
<TABLE>
<CAPTION>
Direct Financing Operating
Leases Leases
---------------- ----------
<C> <C> <C>
1997 $1,665,320 17,278,925
1998 1,697,486 19,125,032
1999 1,729,651 19,336,480
2000 1,761,058 19,744,870
2001 1,438,148 20,255,021
Thereafter 8,999,292 100,752,859
----------- ------------
TOTALS $17,290,955 $196,493,187
=========== ============
</TABLE>
During 1994, the Company restructured two direct financing leases, one into a
$3,324,000 mortgage loan and the other into a $3,582,000 operating lease. During
1996, the Company restructured nineteen loans totalling $40,567,000 into
operating leases. This noncash investing activity is appropriately not reflected
in the accompanying statement of cash flows.
-26-
<PAGE> 27
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. CONCENTRATION OF RISK
As of December 31, 1996, long-term care facilities comprised 85% of the
Company's real estate investments and were located in 25 states. The Company's
investments with the three largest operators totaled approximately 30%. No
single operator has a real estate investment balance which exceeds 12% of total
real estate investments, including credit enhancements.
5. ALLOWANCE FOR LOSSES
<TABLE>
<CAPTION>
The following is a summary of the allowance for losses for 1996, 1995 and 1994.
<S> <C> <C>
Balances at January 1, 1994 $4,150,000
Provision for losses 1,000,000
----------
Balances at December 31, 1994 5,150,000
Provision for losses 4,800,000
----------
Balances at December 31, 1995 9,950,000
Provision for losses 600,000
Disposition of investment 807,791
Charge-offs (1,570,851)
-----------
Balances at December 31, 1996 $9,786,940
==========
</TABLE>
The allowance consists of $6,000,000 relating to specifically identified loans
and an unallocated amount for other potential losses in the portfolio. Interest
income on impaired loans is recognized as payments are received. The Company
recognized $323,000 of interest income on impaired loans in 1995.
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS
The Company has a credit arrangement with a consortium of ten banks providing
for a revolving line of credit (revolving credit) in the amount of $150,000,000
which expires on March 31, 1997. The agreement specifies that borrowings under
the revolving credit are subject to interest payable in periods no longer than
three months on either the agent bank's base rate of interest or 1.5% over LIBOR
interest rate (based at the Company's option). The effective interest rate at
December 31, 1996 was 7.39%. In addition, the Company pays a commitment fee at
an annual rate of .5% of the unused line and an annual agent's fee of $75,000.
At December 31, 1996, the revolving line of credit was collateralized by 41 real
estate investments in health care facilities. Principal is due upon expiration
of the agreement, but the total amount outstanding may not exceed a specified
percentage of the agreed-upon values of the collateral. The Company has two
other lines of credit with two banks for a total of $35,000,000 which expire at
various dates through May 31, 1997. Borrowings under these lines of credit are
subject to interest at each bank's prime rate of interest (8.25% at December 31,
1996) and are due on demand.
-27-
<PAGE> 28
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. BORROWINGS UNDER LINE OF CREDIT ARRANGEMENTS AND RELATED ITEMS (CONTINUED)
<TABLE>
<CAPTION>
The following information relates to aggregate borrowings under the line of
credit arrangements:
YEAR ENDED DECEMBER 31
1996 1995 1994
--------------------------------------------
<S> <C> <C> <C>
Balance outstanding at December 31 $ 92,125,000 $106,700,000 $ 70,900,000
Maximum amount outstanding at any
month end 142,600,000 119,100,000 70,900,000
Average amount outstanding (total
of daily principal balances
divided by days in year) 110,666,754 88,850,548 51,422,466
Weighted average interest rate
(actual interest expense divided
by average borrowings outstanding) 7.72% 8.41% 6.88%
</TABLE>
The Company has a five-year interest rate swap agreement totalling $20,000,000,
which expires in 1997, for the purpose of reducing the Company's interest rate
risk on its borrowings under the revolving credit. The maximum rate of interest
under the swap agreement is 8.77%. At December 31, 1996, the Company had elected
to borrow $20,000,000 at six-month LIBOR. The differential to be paid or
received is accrued as interest rates change and is recognized as an interest
expense. The related amount payable to or receivable from counterparties is
included in other liabilities or assets. The fair value of the swap agreements
are not recognized in the financial statements.
The Company may or may not elect to continue to match certain of its borrowings
with interest rate swap agreements. Such decisions are principally based on the
Company's policy to match its variable rate investments with comparable
borrowings, but is also based on the general trend in interest rates at the
applicable dates and the Company's perception of future volatility of interest
rates. At December 31, 1996, the Company was at risk for rising interest rates
because its variable interest rate debt exceeded its variable interest rate
assets.
Interest paid amounted to $14,210,532, $13,083,783 and $9,256,551 for 1996, 1995
and 1994, respectively, which includes $298,562, $706,318 and $1,309,368,
respectively, for the net cost of the swaps. The Company capitalized interest
costs of $287,397 during 1996 related to construction of its facilities.
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS
The Company has $82,000,000 of Senior Notes with interest ranging from 6.96% to
8.24% and maturing at various dates to 2003. These notes are collateralized by
23 real estate investments in health care facilities.
-28-
<PAGE> 29
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. SENIOR NOTES AND OTHER LONG-TERM OBLIGATIONS (CONTINUED)
<TABLE>
<CAPTION>
The following information relates to other long-term obligations:
December 31
1996 1995
----------------------------------
<S> <C> <C>
Notes payable related to industrial development
bonds, collateralized by two health care
facilities, interest rates from 11.25% to 15%,
maturing at various dates to 2002 $ 2,320,000 $2,545,000
Mortgage notes payable, collateralized by two
health care facilities, interest rates from 7.625%
to 12%, maturing at various dates to 2034 7,950,011 1,514,639
----------- ----------
TOTALS $10,270,011 $4,059,639
=========== ==========
</TABLE>
At December 31, 1996, the annual principal payments on these long-term
obligations for the succeeding five years are 1997 - $695,134; 1998 -
$23,366,282; 1999 - $239,677; 2000 - $15,273,977; and 2001 - $10,319,285.
8. STOCK OPTION PLANS AND RETIREMENT ARRANGEMENTS
The Company's 1995 Stock Incentive Plan authorized up to 600,000 shares of
Common Stock to be issued at the discretion of the Board of Directors. The 1995
Plan replaced the 1985 Incentive Stock Option Plan. The options granted under
the 1985 Plan continue to vest through 2005 and expire ten years from the date
of grant. Officers and key salaried employees of the Company are eligible to
participate in the 1995 plan. Such options expire ten years from the date of
grant and one-fifth of all options granted become exercisable each year.
The following summarizes the activity in the Plans for the years ended December
31:
<TABLE>
<CAPTION>
1996 1995
---- ----
Average Average
Shares Exercise Price Shares Exercise Price
------ -------------- ------ --------------
<S> <C> <C> <C> <C>
Options at beginning of year 485,268 $19.95 183,140 $20.71
Options granted 425,000 19.14 316,268 19.28
Options exercised (44,000) 17.66 (14,140) 14.81
Options terminated (117,000) 20.67
--------- ----- ------- ------
749,268 $19.51 485,268 $19.95
======= ====== ======= ======
At end of year:
Shares exercisable 226,160 $21.45 243,198 $20.10
</TABLE>
The Company has a 401(k) Profit Sharing Plan covering all eligible employees.
Under the Plan, eligible employees may make contributions, and the Company may
make a profit sharing contribution. Company contributions to this Plan totaled
$90,000 and $6,000 in 1996 and 1995, respectively.
-29-
<PAGE> 30
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. DISTRIBUTIONS
In order to continue to qualify as a real estate investment trust for federal
income tax purposes, 95% of taxable income (not including capital gains) must be
distributed to shareholders. Real estate investment trusts which do not
distribute a certain amount of current year taxable income in the current year
are also subject to a 4% federal excise tax. The Company's excise tax expense
was $317,000, $326,000 and $575,000 for the years ended December 31, 1996, 1995
and 1994, respectively. Undistributed net income for federal income tax purposes
amounted to $15,930,000 at December 31, 1996. The principal reasons for the
difference between undistributed net income for federal income tax purposes and
financial statement purposes are the use of the operating method of accounting
for leases for federal income tax purposes and the provision for losses for
reporting purposes versus bad debt expense for tax purposes.
Cash distributions paid to shareholders, for federal income tax purposes, are as
follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1996 1995 1994
------------------------------------------
Per Share:
<S> <C> <C> <C>
Ordinary income $2.03 $2.075 $ .72
Capital gains .05 1.29
----- ------ -----
TOTALS $2.08 $2.075 $2.01
===== ====== =====
</TABLE>
10. COMMITMENTS AND CONTINGENCIES
At December 31, 1996, the Company has outstanding commitments to provide
financing for facilities in the approximate amount of $236,277,000. The above
commitments are generally on similar terms as existing financings of a like
nature with rates of return to the Company based upon current market rates at
the time of the commitment.
The Company has entered into several agreements to purchase health care
facilities, or the loans with respect thereto, in the event that the present
owners default upon their obligations. In consideration for these agreements,
the Company receives and recognizes fees annually related to these agreements.
Although the terms of these agreements vary, the purchase prices are equal to
the amount of the outstanding obligations financing the facility. These
agreements expire between the years 1997 and 2005. At December 31, 1996,
obligations under these agreements for which the Company was contingently liable
aggregated approximately $18,815,000, all of which were with related parties.
11. MANAGEMENT AGREEMENT
Through November 30, 1995, the Company had a management agreement with First
Toledo Advisory Company (the Manager). Two of the Company's directors were
officers and co-owners of the Manager. The Company accrued a fee to the Manager
as defined in the Management Agreement. On November 30, 1995, the Manager merged
with and into the Company pursuant to a Revised Merger Agreement (the "Merger").
Consideration for this transaction totaled approximately $5,048,000 which was
solely comprised of 282,407 shares of the Company's common stock. In addition,
the Company acquired approximately $46,000 in net assets and incurred
approximately $792,000 of related transaction expenses. The Merger was a
tax-free reorganization. The consideration, plus related transaction expenses,
were accounted for as a settlement of a management contract.
-30-
<PAGE> 31
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. SHAREHOLDER RIGHTS PLAN
Under the terms of a Shareholder Rights Plan approved by the Board of Directors
in July 1994, a Preferred Share Right (Right) is attached to and automatically
trades with each outstanding share of Common Stock.
The Rights, which are redeemable, will become exercisable only in the event that
any person or group becomes a holder of 15% or more of the Common Stock, or
commences a tender or exchange offer which, if consummated, would result in that
person or group owning at least 15% of the Common Stock. Once the Rights become
exercisable, they entitle all other shareholders to purchase one one-thousandth
of a share of a new series of junior participating preferred stock for an
exercise price of $48.00. The Rights will expire on August 5, 2004 unless
exchanged earlier or redeemed earlier by the Company for $.01 per Right at any
time before public disclosure that a 15% position has been acquired.
13. DISCLOSURE ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value.
Mortgage Loans--The fair value of all mortgage loans, except those matched with
debt, is estimated by discounting the future cash flows using the current rates
at which similar loans would be made to borrowers with similar credit ratings
and for the same remaining maturities. Mortgage loans matched with debt are
presumed to be at fair value.
Working Capital and Construction Loans--The carrying amount is a reasonable
estimate of fair value for working capital and construction loans because the
interest earned on these instruments is variable.
Cash and Cash Equivalents--The carrying amount approximates fair value because
of the short maturity of these financial instruments.
Investment Securities Available-for-Sale--The asset is recorded at its fair
market value.
Borrowings Under Line of Credit Arrangements--The carrying amount of the line of
credit approximates fair value because the borrowings are interest rate
adjustable.
Senior Notes and Industrial Development Bonds--The fair value of the senior
notes payable and the industrial development bonds was estimated by discounting
the future cash flow using the current borrowing rate available to the Company
for similar debt.
Mortgage Loans Payable--Mortgage loans payable is a reasonable estimate of fair
value because they are matched with loans receivable.
-31-
<PAGE> 32
HEALTH CARE REIT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
------------------- ------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
-------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Financial Assets:
Mortgage loans $292,442,443 $300,136,000 $267,483,683 $276,648,000
Working capital and
construction loans 65,739,589 65,739,589 24,515,039 24,515,039
Cash and cash equivalents 581,390 581,390 860,350 860,350
Investment securities
available-for-sale 768,451 768,451 845,297 845,297
Financial Liabilities:
Borrowings under line of
credit arrangements 92,125,000 92,125,000 106,700,000 106,700,000
Senior notes 82,000,000 82,301,000 52,000,000 54,203,000
Industrial development bonds 2,320,000 2,650,000 2,545,000 3,054,000
Mortgage loans payable 7,950,011 7,950,011 1,514,639 1,514,639
</TABLE>
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations of
the Company for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
Year Ended December 31, 1996
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
---------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $10,890,381 $14,625,578 $14,068,308 $14,817,548
Net Income 5,677,108 8,568,871 7,383,279 9,046,304
Net Income Per Share .47 .66 .50 .55
Year Ended December 31, 1995
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
-----------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 9,624,993 $ 9,677,526 $13,315,515 $11,977,893
Net Income 4,864,965 4,637,190 3,346,835 785,983
Net Income Per Share .42 .40 .28 .06
</TABLE>
-32-
<PAGE> 33
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated herein by reference to the
information under the heading "Election of Directors" and "Executive Officers of
the Company" in the definitive proxy statement of the Company which will be
filed with the Commission prior to April 22, 1997.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
information under the heading "Remuneration" in the definitive proxy statement
of the Company which will be filed with the Commission prior to April 22, 1997.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
information under the heading "Security Ownership of Certain Beneficial Owners"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to April 22, 1997.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
information under the heading "Certain Relationships and Related Transactions"
in the definitive proxy statement of the Company which will be filed with the
Commission prior to April 22, 1997.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
(a) 1. The following Consolidated Financial Statements of the Company
are included in Part II, Item 8:
<S> <C>
Report of Independent Auditors.......................................................................17
Consolidated Balance Sheets - December 31, 1996 and 1995.............................................18
Consolidated Statements of Income - Years ended December 31, 1996,
1995 and 1994....................................................................................19
Consolidated Statements of Shareholders' Equity - Years ended
December 31, 1996, 1995 and 1994.................................................................20
Consolidated Statements of Cash Flows - Years ended
December 31, 1996, 1995 and 1994.................................................................21
Notes to Consolidated Financial Statements - December 31, 1996........................................22
</TABLE>
-33-
<PAGE> 34
2. The following Financial Statement Schedules are included in Item
14 (d):
III - Real Estate and Accumulated Depreciation
IV - Mortgage Loans on Real Estate
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are
not required under the related instructions or are inapplicable and
therefore have been omitted.
3. Exhibit Index:
3(i) Second Restated Certificate of Incorporation.
3(ii) By-Laws, as amended.
4 The Registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission upon its
request a copy of any instrument which defines the
rights of holders of long-term debt of Registrant and
which authorizes a total amount of securities not in
excess of 10% of the total assets of the Registrant.
10(ii)(A) Rights Agreement.
10(ii)(B) Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 8, 1993.
10(ii)(C) Amended and Restated Credit Agreement dated as of
September 8, 1994 among Health Care REIT, Inc., certain
banks, and National City Bank, as Agent.
10(ii)(D) Note Purchase Agreement between Health Care REIT, Inc.
and each of the Purchasers a Party thereto, dated as of
April 15, 1995.
10(iii)(A) The 1985 Incentive Stock Option Plan of Health Care
REIT, Inc. as amended.
10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive Plan
21 Subsidiaries of the Registrant.
23 Consent of Independent Auditors.
24 Powers of Attorney.
27 Financial Data Schedule (Edgar version only).
(b) Reports on Form 8-K filed in the fourth quarter of 1996:
Form 8-K filed with the Securities and Exchange Commission on December 12,
1996.
(c) Exhibits:
The exhibits listed in Item 14(a)(3) above are filed with this Form 10-K.
(d) Financial Statement Schedules:
Financial statement schedules are included in pages 36 through 40.
-34-
<PAGE> 35
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
HEALTH CARE REIT, INC.
(Registrant)
By: GEORGE L. CHAPMAN
---------------------------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below on February ___, 1997 by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
/s/ William C. Ballard, Jr.* /s/ Richard A. Unverferth*
- ------------------------------------- ----------------------------------
William C. Ballard, Jr., Director Richard A. Unverferth, Director
/s/ Pier C. Borra*
- ------------------------------------ ----------------------------------
Pier C. Borra, Director Frederic D. Wolfe, Director
/s/ Bruce Douglas* /s/ George L. Chapman
- ------------------------------------ ----------------------------------
Bruce Douglas, Director George L. Chapman, Chairman,
Chief Executive Officer, President
and Director (Principal Executive
Officer)
/s/ Richard C. Glowacki* /s/ Edward F. Lange, Jr.*
- ------------------------------------ ----------------------------------
Richard C. Glowacki, Director Edward F. Lange, Jr., Chief
Financial Officer (Principal
Financial Officer)
/s/ Sharon M. Oster* /s/ Michael A. Crabtree*
- ------------------------------------ ----------------------------------
Sharon M. Oster, Director Michael A. Crabtree, Controller
(Principal Accounting Officer)
/s/ Bruce G. Thompson* *By: /s/ George L. Chapman
- ------------------------------------ ----------------------------------
Bruce G. Thompson, Director George L. Chapman,
Attorney-in-Fact
-35-
<PAGE> 36
<TABLE>
<CAPTION>
HEALTH CARE REIT, INC.
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
Initial Cost Gross Amount at Which
to Company Carried at Close of Period
--------------------------
Cost
Capitalized
Buildings & Subsequent to Buildings & Accumulated Year Year
Description Encumbrances Improvements Acquisition Land Improvements Depreciation Acquired Built
----------- ------------ ------------ ------------- ---- ------------ ------------ -------- -----
ASSISTED LIVING FACILITIES:
- --------------------------
<S> <C> <C> <C> <C> <C> <C>
Bradenton, FL $ 3,298,000 $ 252,000 $ 3,298,000 $ 91,928 1996 1995
Sarasota, FL 3,174,800 475,200 3,174,800 88,473 1996 1995
Newton, NC 819,240 180,000 20,760 999,240 66,769 1993 1985
Statesville, NC 1,331,265 292,500 33,735 1,623,765 108,500 1993 1990
Yadkinville, NC 1,262,995 277,500 32,005 1,540,495 102,936 1993 1983
Cranford, NJ 11,703,000 3,297,000 11,703,000 13,634 1996 1993
Bartlesville, OK 1,380,000 100,000 1,380,000 34,781 1994 1995
Chickasha, OK 1,395,000 85,000 1,395,000 28,422 1995 1996
Duncan, OK 1,347,000 103,000 1,347,000 17,877 1995 1996
Edmond, OK 1,564,000 175,000 1,564,000 20,363 1995 1996
Enid, OK 1,390,000 90,000 1,390,000 35,000 1995 1996
Lawton, OK 1,456,000 144,000 1,456,000 19,126 1995 1996
Midwest City, OK 1,385,000 95,000 1,385,000 34,891 1996 1996
Muskogee, OK 1,432,500 150,000 1,432,500 5,143 1996 1996
Norman, OK 1,484,000 55,000 1,484,000 23,367 1995 1996
N. Oklahoma City, OK 1,508,000 87,000 1,508,000 1,793 1995 1996
Oklahoma City, OK 1,350,000 130,000 1,350,000 27,253 1995 1996
Ponca City, OK 1,536,000 114,000 1,536,000 54,874 1995 1995
Shawnee, OK 1,400,000 80,000 1,400,000 34,964 1995 1996
Stillwater, OK 1,400,000 80,000 1,400,000 35,219 1995 1996
Pittsburgh, PA $ 6,529,558 10,157,760 423,240 10,157,760 99,050 1996 1989
Pittsburgh, PA 6,736,040 429,960 6,736,040 126,151 1996 1989
Claremore, TX 1,427,500 155,000 1,427,500 5,127 1996 1996
Ft. Worth, TX 3,790,000 210,000 3,790,000 73,726 1992 1984
Houston, TX 3,138,640 261,360 3,138,640 46,136 1994 1995
Owasso, TX 1,380,000 215,000 1,380,000 1,660 1996 1996
Palestine, TX 1,409,500 173,000 1,409,500 5,071 1996 1996
Texarkana, TX 1,403,000 192,000 1,403,000 1,683 1996 1996
Waxahachie, TX 1,428,500 154,000 1,428,500 5,130 1996 1996
Chesapeake, VA 889,714 120,960 81,327 1,010,674 94,742 1993 1988
Poquoson, VA 1,313,386 178,560 120,053 1,491,946 139,857 1993 1987
Williamsburg, VA 2,033,630 276,480 185,890 2,310,110 216,553 1993 1987
----------- ----------- ----------- ----------- -----------
Total Assisted Living Facilities: $76,724,470 $ 1,326,000 $ 8,199,530 $78,050,470 $1,660,199
</TABLE>
-36-
<PAGE> 37
<TABLE>
<CAPTION>
SCHEDULE III - Continued
Initial Cost Gross Amount at Which
to Company Carried at Close of Period
--------------------------
Cost
Capitalized
Buildings & Subsequent to Buildings & Accumulated Year Year
Description Encumbrances Improvements Acquisition Land Improvements Depreciation Acquired Built
----------- ------------ ------------ ------------- ---- ------------ ------------ -------- -----
SKILLED NURSING FACILITIES:
<S> <C> <C> <C> <C> <C> <C>
Camp Verde, AZ 3,148,543 $ 275,000 $ 3,148,543 $1,040,538 1990 1985
Southington, CT 9,563,000 937,000 9,563,000 911,789 1993 1975
Owensboro, KY 4,870,000 130,000 4,870,000 390,615 1993 1967
Fall River, MA 5,080,000 620,000 5,080,000 20,234 1996 1973
Falmouth, MA 3,022,000 670,000 3,022,000 4,207 1996 1966
South Boston, MA 1,463,000 385,000 1,463,000 2,478 1995 1961
Webster, MA 8,790,000 570,000 8,790,000 11,514 1995 1982
Kent, OH 3,366,890 214,900 3,366,890 290,213 1989 1983
Easton, PA 6,315,000 285,000 6,315,000 850,817 1993 1959
San Antonio, TX 12,587,500 662,500 12,587,500 1,299,460 1993 1978
----------- ----------- --------- ----------- ----------
Total Skilled Nursing Facilities $58,205,933 $4,749,400 $58,205,933 $4,821,865
Construction in Progress 2,710,000 8,189,576
------------ ------------- ----------- ------------ ----------
Total Investment in Properties $134,930,403 $1,326,000 $15,658,930 $144,445,979 $6,482,065
============ ============= =========== ============ ==========
Reconciliation of Real Estate:
Carrying cost: Accumulated depreciation:
Balance at beginning period: $63,000,383 Balance at beginning of period: $4,371,874
Additions during period: Additions during period:
Acquisitions $50,398,346 Depreciation expense $2,427,253
Improvements, etc. 15,684,577
Other (1) 40,846,653 106,929,576 2,427,253
---------- ------------ ---------
169,929,959 6,799,127
Deductions during period: Deductions during period:
Gross carrying cost of Accumulated depreciation
real estate sold (9,825,050) on real estate sold (317,062)
------------ ----------
Balance at end of period $160,104,909 Balance at end of period $6,482,065
============ ==========
(1) Includes $40,566,653 of mortgage loans and $280,000 of Direct Financing
Leases that were converted to operating lease properties during 1996.
</TABLE>
-37-
<PAGE> 38
<TABLE>
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
HEALTH CARE REIT, INC.
DECEMBER 31, 1996
<CAPTION>
PRINCIPAL AMOUNT
OF LOANS SUBJECT
FINAL PERIODIC CARRYING TO DELINQUENT
INTEREST MATURITY PAYMENT PRIOR FACE AMOUNT AMOUNT OF PRINCIPAL OR
DESCRIPTION RATE DATE TERMS LIENS OF MORTGAGES MORTGAGES INTEREST
- -------------------- ------ ------ ------- ------ ------------ --------- ---------
FIRST MORTGAGES:
- --------------------
<S> <C> <C> <C> <C> <C> <C> <C>
McAllen, TX 10.41% 01/01/10 Monthly $13,750,000 $13,750,000 None
(Specialty Care Payments
Facility) $119,281
Brea, CA 11.77% 07/01/15 Monthly 11,000,000 10,875,833 None
(Specialty Care Payments
Facility) $113,940
Washington, D.C. 11.58% 07/01/15 Monthly 17,350,000 17,245,787 None
(Specialty Care Payments
Facility) $173,234
Farmington, CT 12.69% 12/01/08 Monthly 25,100,000 24,738,935 None
Manchester, CT Payments
Manchester, CT $276,963
Manchester, CT
New Haven, CT
Waterbury, CT
(6 Nursing Homes)
Stoughton, MA 10.32% 03/01/10 Monthly 15,000,000 15,000,000 None
(Nursing Home) Payments
$129,000
Little Rock, AK 10.75% 01/01/04 Monthly 27,000,000 25,559,664 None
(Specialty Care Payments
Facility) $228,972
</TABLE>
-38-
<PAGE> 39
<TABLE>
<CAPTION>
Principal Amount
SCHEDULE IV - Continued of Loans Subject
Final Periodic Carrying to Deliquent
Interest Maturity Payment Prior Face Amount Amount of Principal or
Description Rate Date Terms Liens of Mortgages Mortgages Interest
----------- --------- --------- ------- ------- ------------ ----------- ------------
<C> <C> <C> <C> <C> <C> <C> <C> <C>
47 mortgage loans relating to 32 From From $217,957,884 $208,201,229(A) $16,983,827 (B)
nursing homes, 12 assisted 10.38% to 12/01/98-
living facilities, 13.01% 01/01/17
5 retirement centers, 2
behavioral care facilities and 1
specialty care facility
13 construction loans (all with From N/A 77,634,700 35,453,174
first mortgage liens) relating to 10.75% to
11 assisted living facilities, 1 11.75%
nursing home and 1 retirement
center
SECOND MORTGAGES:
1 nursing home and 11.41% 08/01/97
1 behavioral care loan currently in default
facility is due and payable
3,950,000 2,630,659 2,575,103(B)
------------ ------------ ----------
TOTALS $408,742,584 $353,455,281 $19,558,930
============ ============ ===========
</TABLE>
(A) For income tax purposes, the cost of investments is the carrying amount less
$6,000,000, as disclosed in the schedule.
(B) The Company is in dispute with two operators, both of which are over three
months past due on certain interest and principal payments. The Company has
evaluated these investments and has allocated in the aggregate $6,000,000 of
its allowance to reduce their carrying value to their estimated net
realizable value.
-39-
<PAGE> 40
SCHEDULE IV - Continued
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------
1996 1995 1994
------ ------ -----
Reconciliation of mortgage loans:
<S> <C> <C> <C>
Balance at beginning of period $285,219,382 $247,885,457 $178,047,274
Additions during period:
New mortgage loans 163,963,054 103,275,637 112,764,951
Negative principal amortization 134,433 311,295 642,630
Other (1) 3,656,084
------------ ------------ -------------
449,316,869 351,442,389 295,110,939
Deductions during period:
Collections of principal (2) 55,294,935 66,223,007 47,255,482
Other (3) 40,566,653
------------ ----------- ------------
Balance at end of period $353,455,281 $285,219,382 $247,855,457
============ ============ ============
</TABLE>
(1) During 1994, the Company restructured a direct financing lease into a
mortgage loan.
(2) Includes collection of negative principal amortization.
(3) During 1996, the Company restructured nineteen loans into operating leases.
-40-
<PAGE> 41
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
The following documents are included in this Form 10-K as an Exhibit:
DESIGNATION
NUMBER UNDER
EXHIBIT ITEM 601 OF EXHIBIT PAGE
NUMBER REGULATION S-K DESCRIPTION NUMBER
------ -------------- ----------- ------
<S> <C> <C> <C>
1(1) 3(i) Second Restated Certificate of Incorporation.
2(2) 3(ii) By-Laws, as amended.
3 4 The Registrant, by signing this Report, agrees to
furnish the Securities and Exchange Commission
upon its request a copy of any instrument which
defines the rights of long-term debt of the Registrant
and which authorizes a total amount of securities not
in excess of 10% of the total assets of the Registrant.
4(3) 10(ii)(A) Rights Agreement.
5(4) 10(ii)(B) Note Purchase Agreement between Health Care
REIT, Inc. and each of the Purchasers a Party
thereto, dated as of April 8, 1993
6(5) 10(ii)(C) Amended and Restated Credit Agreement dated as of
September 8, 1994 among Health Care REIT, Inc.,
certain banks, and National City Bank, as Agent.
7(6) 10(ii)(D) Note Purchase Agreement between Health Care
REIT, Inc. and each of the Purchasers a Party
thereto, dated April 15, 1995.
8(7) 10(iii)(A) The 1985 Incentive Stock Option Plan of Health
Care REIT, Inc., as amended.
9(8) 10(iii)(B) The Health Care REIT, Inc. 1995 Stock Incentive
Plan
10 21 Subsidiaries of the Registrant.
11 23 Consent of Independent Auditors.
12 24 Powers of Attorney.
13 27 Financial Data Schedule (Edgar version only).
- ---------------
<FN>
1 Incorporated by reference to Exhibit 3(i) to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.
</TABLE>
-41-
<PAGE> 42
<TABLE>
<CAPTION>
<S> <C>
2 Incorporated by reference to Exhibit 3(ii) to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.
3 Incorporated by reference to the Exhibit to the Registrant's Form 8-A filed on April 3, 1994 (File No. 1-
8923).
4 Incorporated by reference to Exhibits 1-4 of the Registrant's Quarterly
Report on Form 10-Q for the quarterly period ended March 31, 1993.
5 Incorporated by reference to Exhibit 1 of the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended September 30, 1994.
6 Incorporated by reference to Exhibit 4 of the Registrant's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1996.
7 Incorporated by reference to Exhibit 4.4 to the Registrant's Registration Statement on Form S-8 (File No.
333-1237) filed on February 27, 1996.
8 Incorporated by reference to Exhibit 4.1 to the Registrant's Registration Statement on Form S-8 (File No.
333-1239) filed on February 27, 1996.
</TABLE>
-42-
<PAGE> 1
EXHIBIT 10
SUBSIDIARIES OF THE REGISTRANT
On November 1, 1993 and July 9, 1996, the Company formed two wholly-owned
subsidiaries, HCRI Pennsylvania Properties, Inc. and HCRI Overlook Green, Inc.,
respectively. These Pennsylvania corporations were created to own real estate in
the State of Pennsylvania.
On December 27, 1996 and December 30, 1996, the Company formed a wholly-owned
subsidiary, HCRI Texas Properties, Inc., a Delaware corporation, and HCRI Texas
Properties, Ltd., a Texas limited partnership, respectively. Both entities were
created in connection with real estate investments in the State of Texas.
-43-
<PAGE> 1
EXHIBIT 11
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement (Form
S-3 No. 33-43685) dated October 31, 1991 of Health Care REIT, Inc., the
Registration Statement (Form S-8 No. 33-46561) dated March 20, 1992 pertaining
to The 1985 Incentive Stock Option Plan of Health Care REIT, Inc., the Amendment
No. 1 to the Registration Statement (Form S-3 No. 33-64877) dated February 9,
1996 of Health Care REIT, Inc., the Registration Statement (Form S-8 No.
333-1237) dated February 27, 1996 pertaining to The 1985 Incentive Stock Option
Plan of Health Care REIT, Inc., the Registration Statement (Form S-8 No.
333-1239) dated February 27, 1996 pertaining to the Health Care REIT, Inc. 1995
Stock Incentive Plan, the Registration Statement (Form S-3 No. 333-19537) dated
January 10, 1997 and the Amendment No. 1 to the Registration Statement (Form S-3
No. 33-19801) dated January 29, 1997 of Health Care REIT, Inc. of our report
dated January 31, 1997 with respect to the consolidated financial statements and
schedules of Health Care REIT, Inc. included in this Annual Report (Form 10-K)
for the year ended December 31, 1996.
ERNST & YOUNG LLP
Toledo, Ohio
February 7, 1996
-44-
<PAGE> 1
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th
day of February, 1997.
/S/ WILLIAM C. BALLARD, JR.
-----------------------------------
William C. Ballard, Jr., Director
-45-
<PAGE> 2
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th
day of February, 1997.
/S/ BRUCE DOUGLAS
-----------------------------
Bruce Douglas, Director
-46-
<PAGE> 3
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 2nd
day of February, 1997.
/S/ RICHARD C. GLOWACKI
-----------------------------
Richard C. Glowacki, Director
-47-
<PAGE> 4
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN her true and lawful attorney-in-fact and agent, with
full power to act, her true and lawful attorney-in-fact and agent, for her and
in her name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as she might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets her hand this 31st
day of January, 1997.
/S/ SHARON M. OSTER
--------------------------
Sharon M. Oster, Director
-48-
<PAGE> 5
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th
day of February, 1997.
/s/ BRUCE G. THOMPSON
-------------------------------
Bruce G. Thompson, Director
-49-
<PAGE> 6
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity as director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 5th
day of February, 1997.
/S/ RICHARD A. UNVERFERTH
------------------------------------
Richard A. Unverferth, Director
-50-
<PAGE> 7
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for him and
in his name, place and stead, in the capacity of director, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 7th
day of February, 1997.
/s/ PIER C. BORRA
---------------------------------
Pier C. Borra, Director
-51-
<PAGE> 8
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, a director and the
Chairman of the Board and Principal Executive Officer of Health Care REIT, Inc.
(the "Company"), a Delaware corporation that is about to file with the
Securities and Exchange Commission, Washington, D.C. 20549, under the provisions
of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report
for the year ended December 31, 1996, hereby constitutes and appoints EDWARD F.
LANGE, JR., his true and lawful attorney-in-fact and agent, with full power to
act, his true and lawful attorney-in-fact and agent, for him and in his name,
place and stead, in the capacities as director and Chairman of the Board and
Principal Executive Officer, to sign such Form 10-K which is about to be filed,
and any and all amendments to such Form 10-K, and to file such Form 10-K and
each such amendment so signed, with all exhibits thereto, and any and all other
documents in connection therewith, with the Securities and Exchange Commission,
hereby granting unto said attorney-in-fact and agent, full power and authority
to do and perform any and all acts and things requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as he might do
in person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 6th
day of February, 1997.
/s/ GEORGE L. CHAPMAN
--------------------------------
George L. Chapman, Director,
Chairman of the Board and
Principal Executive Officer
-52-
<PAGE> 9
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Principal
Financial Officer and the Principal Accounting Officer of Health Care REIT, Inc.
(the "Company"), a Delaware corporation that is about to file with the
Securities and Exchange Commission, Washington, D.C. 20549, under the provisions
of the Securities Exchange Act of 1934, as amended, a Form 10-K Annual Report
for the year ended December 31, 1996, hereby constitutes and appoints GEORGE L.
CHAPMAN his true and lawful attorney-in-fact and agent, with full power to act,
his true and lawful attorney-in-fact and agent, for him and in his name, place
and stead, in the capacities as the Principal Financial Officer and Principal
Accounting Officer, to sign such Form 10-K which is about to be filed, and any
and all amendments to such Form 10-K, and to file such Form 10-K and each such
amendment so signed, with all exhibits thereto, and any and all other documents
in connection therewith, with the Securities and Exchange Commission, hereby
granting unto said attorney-in-fact and agent, full power and authority to do
and perform any and all acts and things requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might do in
person, hereby ratifying and confirming all that said attorney-in-fact and
agent, may lawfully do or cause to be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 5th
day of February, 1997.
/s/ EDWARD F. LANGE, JR.
------------------------------
Edward F. Lange, Jr., Principal
Financial Officer and
Principal Accounting Officer
-53-
<PAGE> 10
EXHIBIT 12
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS that the undersigned, the Controller of
Health Care REIT, Inc. (the "Company"), a Delaware corporation that is about to
file with the Securities and Exchange Commission, Washington, D.C. 20549, under
the provisions of the Securities Exchange Act of 1934, as amended, a Form 10-K
Annual Report for the year ended December 31, 1996, hereby constitutes and
appoints GEORGE L. CHAPMAN his true and lawful attorney-in-fact and agent, with
full power to act, his true and lawful attorney-in-fact and agent, for his and
in his name, place and stead, in the capacity as Controller, to sign such Form
10-K which is about to be filed, and any and all amendments to such Form 10-K,
and to file such Form 10-K and each such amendment so signed, with all exhibits
thereto, and any and all other documents in connection therewith, with the
Securities and Exchange Commission, hereby granting unto said attorney-in-fact
and agent, full power and authority to do and perform any and all acts and
things requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent, may lawfully do or cause to
be done by virtue hereof.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 4th
day of February, 1997.
/s/ MICHAEL A. CRABTREE
-------------------------------
Michael A. Crabtree, Controller
-54-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 581,390
<SECURITIES> 768,451
<RECEIVABLES> 4,155,812
<ALLOWANCES> 9,786,940
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 160,104,909
<DEPRECIATION> 6,482,065
<TOTAL-ASSETS> 519,831,197
<CURRENT-LIABILITIES> 0
<BONDS> 184,395,011
<COMMON> 18,320,291
0
0
<OTHER-SE> 307,215,850
<TOTAL-LIABILITY-AND-EQUITY> 519,831,197
<SALES> 0
<TOTAL-REVENUES> 54,401,815
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 7,683,677
<LOSS-PROVISION> 1,407,791
<INTEREST-EXPENSE> 14,634,785
<INCOME-PRETAX> 30,675,562
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,675,562
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,675,562
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 2.18
</TABLE>
